10 Things to Know About Mortgage Holidays
For many UK families, the economic reality caused by Covid-19, and to a lesser-known extent, Brexit, is starting to hit home. Jobs are quite simply less secure than they once were - with obvious impacts on our ability to pay critical bills such as mortgage repayments.
Indeed, a recent study by the Joseph Rowntree Foundation found that 1.6 million households - 20% of UK mortgage holders - are worried about being able to repay their mortgage.
In response to such concerns, the government introduced a mortgage holiday scheme back in March, meaning mortgage holders could take a six month "holiday" from repayments.
In November this year, the scheme was extended, giving more people the chance to take the maximum 6-month mortgage holiday.
Those who have had their full sixth month payment break are advised by the FCA to talk to their lender about creating a bespoke support plan - if they are still struggling to make repayments.
Here are 10 things to know about mortgage holidays.
1. It shouldn't be recorded on your credit file
According to the government, any mortgage holiday should not be recorded on your credit history, although some people have told the BBC they have found it more difficult to access loans since they took the payment break. And according to the state-backed Money Advisory Service, "You should ... remember there are other ways lenders can tell whether you have taken a mortgage payment holiday which could impact future lending decisions."
2. You can only take one sixth-month payment holiday
Speak to your lender if you are still struggling to make repayments after your mortgage holiday.
3. Make repayments if you can
The Money Advisory Service recommends that you do not take the mortgage holiday unless you really need to, since you will have to pay back the full amount eventually. It also means you have the mortgage holiday option later on if you really start to struggle.
4. Do not simply cancel your direct debit: speak to your lender first
If you simply stop the direct debit to your lender, a missed payment will show up on your credit file. Arrange to speak to your provider and ask about a mortgage holiday.
5. After the holiday, your monthly payments and/or total amount payable will increase
6. You may choose to make interest or capital-only payments
This will reduce any increases in mortgage repayments compared to some other approaches when your mortgage holiday has finished. Any shortfall in your normal repayments will need to be paid back over the long term.
7. Your lender has a duty to ensure you understand the implications
Your mortgage advisor should explain any alternative, possibly cheaper, options (such as a lump sum repayment), and how a mortgage holiday will impact how much you repay over time.
8. Even if you're already behind on your mortgage repayments, you can request a six-month mortgage holiday.
9. Any mortgage repossession proceedings against you have been suspended until January 2021.
It is unknown if this will be extended, but some believe it is likely given the seriousness of the UK's economic situation.
10. Unregulated or inactive lenders are being asked to adopt mortgage holiday provision
With luck, some time soon we'll be discussing real holidays - rather than the more stressful mortgage variety.
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